Do you remember Chainspace? This technology research company, once based in London, became part of the Libra project team after being acquired by Facebook, attracting widespread attention in the industry. Several early founders of Chainspace went on to establish top projects in the crypto space today, including Celestia (founded by former Chainspace member Mustafa Al-Bassam) and Sui (co-founded by former Chainspace member George Danezis). As a result, the original team from Chainspace is highly regarded in the crypto world, akin to the "PayPal Mafia" of the Web2 era.
Recently, the project released its white paper, and we have a special guest, Dave Hrycyszyn, the former CTO and co-founder of Chainspace, who is now the co-founder and CTO of Side Protocol, to share his insights with us.
Project Background:
The project was established in 2023 and began its foray into the Bitcoin ecosystem in 2024, co-led by former Chainspace technical lead Dave Hrycyszyn and former Binance Labs researcher Shane Qiu. The team has secured millions of dollars in funding from institutions including Hashkey and Symbolic Capital in previous financing rounds. The project's testnet is nearing completion, with the mainnet launch imminent.
Here is the full transcript of our conversation:
Thank you for accepting our interview! Before co-founding Side Protocol, you served as CTO for several outstanding projects. Could you please introduce yourself and share how you entered this industry and eventually joined Side Protocol?
Dave: I am Dave Hrycyszyn. Over nearly 30 years in the tech industry, I operated a software company based in London, successfully completing hundreds of software projects. In 2015, I began focusing on the crypto space, concentrating on research into blockchain scalability protocols. Later, I co-founded Chainspace and served as CTO; the project was acquired by Facebook, which sought to leverage our technical expertise in high-performance chain research. My partners subsequently founded Sui and Celestia, and after realizing that I did not fit the culture of a large company, I left Facebook to join Nym, a zero-knowledge privacy protocol similar to Tor, where I served as CTO leading its development. After securing funding from institutions like Binance, a16z, and Polychain, Nym successfully launched its mainnet. During those years, I led the technical team in completing core technical work and successfully built a team I am very proud of, until I completed my work last year. This year, I recognized that the explosion of the Bitcoin ecosystem was just beginning, so I joined Side Protocol and led the team to pivot towards the Bitcoin ecosystem, aiming to explore new possibilities for Bitcoin.
Q: Can you briefly introduce Side Protocol to us?
Dave: If Bitcoin's goal is to replace fiat currency and gold, then Side Protocol's goal is to act as a bank in a Bitcoin-dominated world. What is the core business of a bank? It is lending. As an on-chain banking protocol for Bitcoin, Side's core product is a non-custodial liquidity lending protocol native to Bitcoin, and we provide various supporting applications around this core. From a product perspective, we have developed a complete set of DeFi services and ecosystem development infrastructure, including native lending, sidechains, cross-chain bridges, and DEX.
Q: For many people, there aren't many projects with such a unique positioning in the Bitcoin ecosystem; most Bitcoin ecosystem projects are still focused on L2 and LSD-related developments. Could you elaborate on your products? What makes them unique?
Dave: Certainly, the core product of Side Protocol, Side Finance, is the safest and most native BTC liquidity lending protocol on the market. It utilizes Bitcoin's native technologies, such as Discreet Log Contracts (DLCs) and Adaptor Signatures, to achieve non-custodial lending when BTC is used as collateral, meaning users only lose control of their collateral in the event of liquidation, allowing them to feel more secure when lending their Bitcoin. It is important to emphasize that Side Finance is not a traditional P2P lending model; rather, it is designed based on liquidity pools, which is an innovative approach. Referring to the DeFi ecosystem on Ethereum, the emergence of automated liquidity protocols truly drove the explosion of DeFi, while P2P models are inefficient and require user matching. Similar to how banks create a "liquidity pool" through deposits to lend, Side Finance will bring higher efficiency through liquidity pools, becoming the core source of revenue for Side Protocol.
In addition to the lending protocol, we also provide a range of infrastructure and supporting services, with Side Chain being an important component. Side Chain uses the high-performance consensus engine CometBFT as its core architecture. This architecture supports fast transaction finality and high throughput, making it very suitable for applications that require quick confirmations. Smart contracts on Side Chain are executed in a Wasm virtual machine and are written in Rust, offering performance and security advantages. The memory safety of Rust and the compatibility of Wasm reduce the risk of common vulnerabilities found in Ethereum smart contracts, such as reentrancy attacks. In the future, Side Chain can also serve as a modular settlement layer for Bitcoin, supporting one-click deployment of various rollups and connecting to other ecosystems through the IBC protocol, thereby gaining rich asset liquidity, including native assets like USDC and USDT. Compared to lending protocols deployed on some Bitcoin sidechains, we are not only safer and more native but also support native stablecoins. We have also made significant improvements in user experience; Side Chain is fully compatible with Bitcoin, allowing users to operate without changing address formats. It currently supports address formats like Taproot and Native Segwit and can directly sign transactions using Bitcoin wallets like Uniswap. Compared to Bitcoin scaling solutions based on EVM addresses and wallets in the market, Side Chain offers a significant enhancement in user experience.
Additionally, Side Protocol has launched several supporting products: Side Hub provides native DEX services; Side Bridge is a multi-signature cross-chain bridge controlled by leading nodes of Side Chain based on TSS technology, supporting BTC and RUNE cross-chain transactions for more trust-tolerant users; Side Wallet is a non-custodial Bitcoin and Side wallet that provides a smoother interaction experience for users switching between the two chains.
Q: We noticed that the v1 white paper has been released, and this version mainly discusses Side Finance. Since the technical threshold is relatively high, many people may not fully understand the differences between Side Finance and other lending protocols. Could you explain the uniqueness of Side Finance in simpler terms?
Dave: When users use BTC as collateral, it is locked in a multi-signature address jointly held by the user and a DCA (Distributed Collateral Agent). This is a "2/2" multi-signature model implemented through DLC technology, meaning that unless a liquidation occurs, spending this BTC requires the user's consent. This ensures that users maintain control over their collateral during the lending process. Whether an asset is liquidated is determined by an external oracle, which is only responsible for providing asset price feeds and does not involve asset management, thus avoiding conflicts of interest. We also have a specially developed distributed oracle system to ensure that the motivation for oracle operators to cause disruptions is extremely low and the cost is very high. So where are the assets borrowed by users, such as USDC, located? They are placed on the Side Chain we mentioned earlier, where the liquidity pool protocol is deployed in the form of smart contracts. Since the Bitcoin main chain does not support assets like USDC and does not technically support such contract functionalities, the only way for Bitcoin lending is through this cross-chain lending. To ensure we can obtain various assets on-chain, we will integrate through multiple interoperability protocols, including CCTP, IBC, Wormhole, and Axelar. As long as assets cross over to our chain through these protocols, they can be stored in the liquidity pool for BTC holders to borrow.
Understanding the working mechanism, we can compare the main avenues for Bitcoin lending:
Centralized Finance: Lending through centralized platforms, but this means trusting the platform's custody, and there have been many instances of centralized institutions collapsing in the past, making user asset security difficult to guarantee.
Cross-chain bridge multi-signature solutions: Generating BTC collateral tokens on chains like Ethereum through cross-chain bridges or using WBTC, and then lending on platforms like Aave. However, this method still requires Bitcoin holders to relinquish asset control and rely on the integrity of multi-signature holders.
DLC-based P2P lending: There are indeed P2P lending protocols based on DLCs in the market, but they are all point-to-point models, requiring users to wait for lending demand to match, which is inefficient.
Native stablecoin protocols: We are also optimistic about the future development of the stablecoin sector, but adopting a new stablecoin requires a relatively long cycle. Additionally, we do not just want to focus on stablecoin lending; we hope to allow BTC holders to borrow various mainstream crypto assets by using BTC as collateral.
In summary, although the Bitcoin lending space has developed for many years, it has always lacked a product that can be both "non-custodial" and achieve "liquidity pools." Side Finance is the first protocol to do this; it does not require users to trust others, can provide an instant lending experience, and unlocks more DeFi combination opportunities.
Q: What is the market outlook for Side Protocol and its Side Finance?
Dave: If we view Ethereum's DeFi protocols as a "sandbox" for the development of Bitcoin DeFi, we can roughly estimate the market opportunity for leading lending protocols on Bitcoin. Assuming Bitcoin's TVL reaches $250 billion, accounting for 15% of its market cap (similar to Ethereum), and referencing Aave's 22% share of total TVL on Ethereum, the TVL of leading lending protocols on Bitcoin could reach approximately $55 billion. Based on Aave's TVL to FDV ratio of 4, this means the FDV potential of that lending protocol could be close to $15 billion.
Therefore, the prospects for revenue from the lending protocol alone are enormous, not to mention the market expansion potential brought about by the further growth of Bitcoin's market value. We hope to become the "super bank" of the Bitcoin world, so in addition to lending services, we will also provide other services to generate more protocol revenue, such as cross-chain services, trading services, and gas fee income as underlying infrastructure. The market opportunity is so vast and clear, yet the competition is not intense, and we are very confident in becoming early practitioners.
Q: Who are the target users of Side Protocol? What are the practical use cases for them?
Dave: Different products will serve different user needs. First, let's talk about the lending protocol we mentioned earlier, which targets all Bitcoin holders who do not want to sell but need funds, including miners, institutions, and individual users. For example, miners can use the protocol to obtain the financial support needed for operations; institutions or individual users can meet their leverage needs while avoiding the need to entrust Bitcoin collateral to third parties. Additionally, for some on-chain DeFi players, when they can achieve higher returns through combination strategies in other protocols than the borrowing costs on our platform, they will also choose to use this product. Such diverse scenarios will effectively stimulate broad user demand and promote the continuous development of the protocol.
Moreover, our Side Chain provides smart contract support for various applications to develop. Although our initial focus is on promoting our own DeFi products, over time, developers will gradually join the ecosystem to develop products on Side Chain, further enriching the ecosystem. This includes currently popular sectors such as AI, DePIN, NFTs, etc., all of which can be realized on our platform.
Q: What are the next plans?
Dave: Currently, we have completed the testnet phase, conducting three rounds of testing with hundreds of thousands of users participating, and we have integrated our self-built Signet while testing on Bitcoin Testnet3. The system's stability has significantly improved. The mainnet launch will be phased, starting with the launch of Side Chain and its related products. After the chain operates stably, we will release the lending protocol Side Finance. To attract lending users, Side Finance will initiate liquidity mining activities to subsidize borrowers and lenders, which is expected to lead to rapid growth in TVL. The protocol's revenue will also increase during this phase, which will be used for token buybacks and burns, with an expected realization in the first quarter of 2025.
As Side Finance matures, we will begin transitioning from focusing on application development to ecosystem transformation. Side Chain will start attracting more decentralized applications around Bitcoin, launching developer incentives to drive a large number of applications to build on us. During this phase, the proportion of gas fees in the protocol's revenue will gradually increase, further enriching the application scenarios of the Side ecosystem.
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